Baker Hughes (BKR) PT Raised to $43 at JPMorgan

JPMorgan analyst Arun Jayaram raised the price target on Baker Hughes (NASDAQ: BKR) to $43.00 (from $42.00) while maintaining a Overweight rating.

The analyst comments " In the third quarter of 2022, BKR announced a strategic transformation that included a streamlined organizational structure and the appointment of several new leaders including CFO Buese and IET EVP Ramaswamy to execute the company’s strategy and lead the company forward. These bold moves by CEO Simonelli to install better athletes into leadership roles has led to more consistent operational and financial performance. This does feel like a different BKR vs. the legacy organization, which had a history of delivering more bumpy results and an occasional head scratching print. Heading into 2024, one of the key investor debates was whether the company could achieve its full-year inbound IET order target of $11.5-13.5 billion, especially given the pause in U.S. LNG export approvals. Despite securing only ~$300mm of LNG equipment orders in 1H24, BKR has booked a total of ~$6.4bn of IET orders in 1H24 and remains on track to reach the middle part of the full-year range due to strength in non-LNG Gas Tech orders (~85% of bookings). This highlights the tremendous breadth of its IET segment. Another theme from the update was the company’s unique ability to marry technologies and services from both OFSE and IET to deliver New Energy solutions. This was reflected in the strength in New Energy orders of $445mm in 2Q24, with YTD orders running at $684mm vs. the full-year guide of $800mm to $1.0bn. BKR printed 2Q24 EBITDA margins of 15.8%, which rose 150bps YoY and topped our estimate by 40bps. The margin beat was driven by strength in SSPS, cost optimization in OFSE, conversion of higher margin backlog in IET, and supply chain efficiency gains in IPS. The company lowered its 2024 NAM spending outlook to a MSD decline, while international spending is still expected to grow in the HSD, albeit at a decelerating pace in 2025 and beyond. This is not the end of the world for BKR given its higher leverage to production, which should provide good growth opportunities for its mature asset solutions product lines including Leucipa. Finally, the company highlighted confidence in achieving its 20% EBITDA margin targets in OFSE in 2025 and IET in 2026. This structural improvement in margins is one of the key factors that supports our positive view on the stock."

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